Tight Credit Standards Halt Some Buyers

Lenders continue to reject borrowers with otherwise good credit when they diverge from the standard approval checklist.

Would-be borrowers facing the most problems include the self-employed.

One reason bankers are so nervous are the standards held out by Fannie Mae and Freddie Mac. Not only are Fannie and Freddie demanding credit scores above 720, they are refusing to buy back defaults when the original mortgage application had small discrepancies from the norm. To avoid losses, lenders are being extra careful.

The result is that some borrowers are being rejected for problems that seem completely inconsequential.

Source: The Wall Street Journal, James R. Hagerty and Nick Timiraos (07/10/10)

U.S. to Offer Incentives to Modify Seconds

The Obama administration is announcing incentives today for mortgages servicers to modify home equity loans and other second mortgages.

Servicers must agree to modify second mortgages when the first mortgage has been modified. They must extend the term of the second mortgage and match the rate of the first mortgage. Then the government will share the cost with the servicer of cutting the rate to 1 percent for amortizing loans and 2 percent for interest-only loans.

Under the program, the government will pay mortgage servicers $500 upfront and $250 a year for three years for the modifications. Borrowers will receive payments of up to $250 a year for five years if they stay current on the modified loan.

There will also be a schedule of incentives for holders of second liens to drop their claims altogether.

The Department of Housing and Urban Development and Treasury will make the announcement jointly.

Bank of America, Wells Fargo, and JPMorgan Chase have already agreed to participate in the program.

A separate announcement will include changes to the Hope for Homeowners program, which helps homeowners refinance into more affordable government-backed loans. To get this program moving, the administration is announcing a $2,500 upfront payment to servicers. Lenders will receive $1,000 a year for three years if the loan stays current.

Source: The Wall Street Journal, Jessica Holzer (04/28/2009)

Banks: No Exceptions for Short Sales

 Increasingly, sellers seeking short sales are encountering a new twist.

Lenders are agreeing to let some short sales go through, but they want the home owners to sign a note promising to pay some or all of the balance due – debts that could burden borrowers for the rest of their lives.

Moody’s Economy.com estimates that about 10 million home owners have negative equity, a condition known colloquially as being upside down or underwater. By next June, the forecasting company expects the total to rise to 12.7 million — a quarter of all home owners who have mortgages.

“The first wave of foreclosures involved a lot of investors who just disappeared,” says Lance Churchill of Frontline Seminars, which teaches real estate practitioners how to negotiate with lenders on short sales. “Now, home owners with jobs and assets are underwater and want to sell. The banks want as much as they can get, today or in the future, and the owners want to get away clean.”

If the lender does a short sale without extracting anything from the seller, everyone in the country who is upside down could try to wiggle out from under and banks will take a fresh wave of hits. But if the lender pushes too hard, the borrower will default, leaving the bank in worse shape.

Source: The New York Times, David Streitfeld 09/18

Squatters Get Comfy in Abandoned Houses

Squatters are moving into foreclosed homes and posing as tenants so they can live in comfort until the bank either goes through the eviction process or bribes them to leave.

In a process known as “cash for key,” the squatters call the bank and boldly ask for money in order to move.

“There are people who move in and know exactly who to contact and say, ‘If you want this house, why don’t you come out here and offer me cash,'” says Detective Erin Camphouse of the Los Angeles Police Department’s Real Estate Fraud Unit.

“It’s just cheaper for the banks to do that rather than going into the courts,” she says. “The squatters are getting sophisticated and turning it on these banks who own the properties.”

California real-estate practitioner Steve Smallson says he finds about three squatting cases a month, compared to none all of last year, in his region of Woodland Hills, a middle-class district of Los Angeles. That includes a case in April involving a foreclosed home worth $1 million where police were called after neighbors reported squatters filming pornography in the house.

Source: Reuters News, Jason Szep (0518/)